Who Benefits from Domestic Market Integration?

The historical integration of economic markets between and within nations has profoundly altered human society. Nonetheless, existing literature on this topic has seldom gone beyond the economic repercussions of this phenomenon. Accordingly, this study examines the relationship between domestic market integration and subjective well-being, of which very little is known. Taking China as a case, we match individual-level data from a longitudinal survey with province-level data to construct panel data and use the fixed effect model to estimate the welfare effect of market integration. Our studies suggest that market integration has a positive effect on welfare overall, contributing to approximately 11.4% of the rise in life satisfaction among Chinese residents from 2010 to 2018. In addition, we found that low-income populations had a relatively large increase in subjective well-being, which implies that market integration is a significant mechanism of redistribution and contributes to reduced happiness inequality. We also discuss the different effects of goods, labor, and capital markets, which are further impacted by heterogeneity in China’s household registration (hukou) system and labor skills. Our findings emphasize the broader importance of reduced market segmentation and are of relevance to policymakers and stakeholders involved in economic reform.